18 September 2019
Market Forces in the Media: Op-ed in the Sydney Morning Herald by Julien Vincent, Executive Director, Market Forces
It was one of the loudest signals yet that Australian superannuation funds wanted strong action on climate change. Ahead of this year’s G20 meeting in Japan, the likes of AustralianSuper, Cbus, Colonial First State, First State Super, HESTA, LUCRF, Mercer, VicSuper and Vision Super were among 476 investors representing more than US$34 trillion in assets worldwide to have joined the Global Investor Statement to Governments on Climate Change.
The super funds demanded action to cut greenhouse gas emissions in line with the goals of the Paris Agreement, which aims to keep global warming well below 2 degrees and pursue efforts to keep warming to no more than 1.5 degrees. This requires, as the statement’s briefing paper kindly points out, the closure of coal power plants in OECD countries by 2030.
If money talks, US$34 trillion must have been a deafening roar to governments attending the G20. But the power of that statement is put at risk by the fact that the same investors actually own the companies generating massive amounts of greenhouse gas emissions that they’re asking governments to tackle.
Investors also need to walk the walk and today they have the chance to do just that, using their power as shareholders to demand the same action of a company in their portfolios.
AGL’s three coal power stations make it Australia’s biggest greenhouse-gas emitter. Its annual general meeting takes place on Thursday and on the agenda is a resolution calling for the company to cut its greenhouse gas emissions in line with the goals of the Paris Agreement.
That’s going to require some significant changes to AGL’s strategy. Its announcement two years ago on retiring the Liddell power station in 2022 was met with a furious reaction from the then Turnbull government, which pleaded with AGL to sell the power station, even offering up taxpayers’ money to keep Liddell operational. (Although “operational” is a pretty generous term to apply to Liddell. It typically runs at about half capacity and has broken down 13 times in less than two years.)
If AGL does want to run its power stations beyond 2030, it will find the pool of available finance drying up.
Of course, if AGL does want to run its power stations beyond 2030, it will find the pool of available finance drying up. Earlier this year, Commonwealth Bank said it would exit thermal coal by 2030, while insurers Suncorp and QBE have both committed to be out of thermal coal by 2025 and 2030, respectively. AGL could just turn to the international insurance market, but even today you’ll find the likes of Aviva, Allianz, AXA, Swiss Re and Zurich all unwilling to cover coal power stations.
At the end of the day, it’s hard to see AGL wanting to pursue a business strategy that relies on expensive, unreliable, old coal power stations being kept open just to satisfy the ideology of the federal government. However, it could probably use some support from investors with a vote in favour of Paris-aligned targets for reducing emissions.
The question now is whether super funds will put their money (by that I mean their members’ money) where their mouths are. If investors want to be treated with integrity when demanding governments take strong action on climate change, they need to at least demonstrate they will manage their own polluting companies the same way.